Chicago-based CME Group Inc., the world’s largest derivatives exchange operator, said it disagrees with ratings agency Standard & Poor’s decision to put the company’s debt rating on CreditWatch Negative over a new plan to cut trading costs.
The CME plan, announced a week ago, would create a clearing membership class and offer margin discounts to traders of both Treasury securities and Treasury futures.
The class — called Financial Instruments Clearing Membership (FICM) — would provide margin benefits of up to 65 percent, and help CME defend its business from a similar, recently-approved offering by rival NYSE Euronext, which is targeting interest rates.
S&P raised a red flag on Thursday, saying it was concerned CME’s plan “incrementally weakens” the existing financial safeguards of its clearinghouse, CME Clearing, and “represents a step toward demutualization of risk” in the event of a member default.
S&P placed its ratings on the Chicago Mercantile Exchange parent, including the company’s investment grade “AA/A-1+” counterparty credit rating and $612.5 million in notes, on “CreditWatch with negative implications.”
A CME spokesman said: “We disagree with S&P’s initial concerns that our FICM structure generates additional risk, and we look forward to resolving this with them.
“We are extremely confident in CME Clearing and the risk management methodology that has provided security to our customers for over 100 years,” he said in an e-mail.
S&P said it intends to gather more information from CME on how it will provide margin relief, how it will monitor the FICM’s securities holdings in real time, and what threat is posed by NYSE Euronext’s join-venture offering, called New York Portfolio Clearing (NYPC).
CME shares were up 0.8 percent at $307.37 on Monday.
